Developers Alert | New Infrastructure Contributions Plan System effective from 27 October 2016

The Victorian Government notes that the purpose of the new ICP system is to ensure:

• A more consistent and transparent approach to the application of infrastructure levies through access to new standard levy rates;
• Planning authorities, infrastructure providers and the development industry have more certainty about the levies payable and the type of infrastructure they will fund; and
• A reduced risk of escalating infrastructure charges by specifying the rates of indexation for the levies.

Already, various developers and industry organisations have expressed concern that the new ICP system will increase development costs and negatively effect housing affordability.

Key Features of the New ICP System
The legislative framework for the new system is set out in the Planning and Environment Act 1987 (Vic) and the relevant Ministerial Direction. It is based on levies that are pre-set for defined ‘development settings’ to fund specified infrastructure, known as allowable items.

The infrastructure levy is made up of two (2) parts: a standard levy and, where appropriate and justified, a supplementary levy.

Standard Levy
The standard levy is a pre-set monetary rate that may be used to fund basic and essential local infrastructure. There are separate standard levy rates for different land uses in different development settings. For example, in metropolitan greenfield growth areas there are separate rates for residential, commercial and industrial development.

The standard levy rates will be indexed annually based on mechanisms in the Ministerial Direction.
Supplementary Levy
The supplementary levy is an additional levy that may be used when the standard levy cannot adequately fund the required infrastructure or where additional infrastructure is required to ‘unlock’ the growth potential of an area. The supplementary levy may also be used to fund state infrastructure in areas of growth where the Growth Areas Infrastructure Contributions (GAIC) levy does not apply. Specific criteria must be met to apply a supplementary levy.
The supplementary levy rate is based on the actual cost of the infrastructure projects being funded by the levy. Projects funded by a supplementary levy must be fully costed and the costs apportioned.

Imposition of Infrastructure Levies
An infrastructure levy may only be imposed through an approved ICP.
The levy is paid by the developer at the time specified in the planning permit or (if no planning permit is required) in the ICP. It is paid to the collecting agency, which is usually the council. A collecting agency may accept (but is not obliged to) works-in-kind in lieu of being paid the infrastructure levy.

Development Settings
Three (3) ‘development settings’ are identified:

Metropolitan greenfield growth areas;
Regional greenfield growth areas; and
Strategic development areas.

From 27 October 2016 the ICP system only operates in metropolitan greenfield growth areas, being land on the fringe of metropolitan areas which are in, or planned to be in, the Urban Growth Zone.
The Victorian Government has foreshadowed that the two other development settings will come into operation at a later stage, at which time their exact definition will be set out in the Ministerial Direction.

Allowable Item
An allowable item is an item specified in the Ministerial Direction that may be funded by a standard levy, a supplementary levy or both of these levies.

Each development setting has its own specific list of allowable items.
An allowable item may take the form of a new infrastructure item, an upgrade or extension to an existing infrastructure item, or the replacement of an infrastructure item that has reached the end of its economic life.